GS3 – Indian Economy
India’s economy is facing increasing external pressures due to rising geopolitical tensions, trade wars, tariff uncertainties, and disruptions in global supply chains.
Global Challenges: Key Concerns for India
- Trade Uncertainty
- Escalation of trade wars and tariff changes, especially involving the U.S. (India’s top export destination).
- Sectors at risk: Apparel, gems & jewellery, pharmaceuticals, electronics, auto components.
- Tariff-Related Risks
- Possible reciprocal tariffs by the U.S. could severely affect MSMEs relying on U.S. markets.
- Volatile trade policies hinder long-term export planning and order fulfilment.
- Dumping Threat
- China and ASEAN countries, with surplus goods, may dump products into India.
- This poses a risk of unfair competition and price undercutting, especially in low-cost sectors.
India’s Strategic Response
Strategic Trade Negotiations
- India–U.S. Bilateral Trade Agreement (BTA):
- Aims to reduce tariffs in key sectors.
- Focus on resolving non-tariff barriers (NTBs) and establishing mutual recognition agreements.
- Expanding Free Trade Agreements (FTAs):
- UK FTA is close to completion.
- India is expediting FTA talks with the EU, Australia, and others to diversify export markets and reduce reliance on a few regions.
Domestic Economic Resilience
- Anti-Dumping Measures:
- Strengthening India’s trade remedial framework to counter predatory pricing and protect domestic industries.
- Public Capital Expenditure:
- Continued investment in infrastructure will sustain growth and attract private capital, especially when global demand is weak.
- Monetary Policy:
- With inflation under control, accommodative policy (including interest rate cuts) may boost consumption and investment.
Note: Predatory pricing refers to selling products below cost to eliminate competition and create monopolies.
Investment & Industrial Strategy
- Anchor Foreign Investment:
- Leverage the China+1 strategy by attracting firms to set up manufacturing units in India, particularly in:
- Electronics
- Semiconductors
- Green technologies
- Leverage the China+1 strategy by attracting firms to set up manufacturing units in India, particularly in:
- Expand PLI Schemes:
- Broaden the scope of Production-Linked Incentive (PLI) schemes to cover:
- IoT devices
- Wearables
- EV battery components
- Supports both manufacturing expansion and employment generation.
- Broaden the scope of Production-Linked Incentive (PLI) schemes to cover: